News Column

Knowles Reports Q2 2014 Financial Results and Supplies Outlook for Q3 2014

August 7, 2014

Knowles released results for the second quarter ended June 30, and provided projections for the third quarter of 2014.

"Our second quarter results were above our prior projections," said Jeffrey Niew, President and CEO of Knowles. "We delivered better-than-expected revenue driven by both our Mobile Consumer Electronics and Specialty Components segments. We saw stronger demand for our micro-acoustic solutions from North American and Chinese OEM customers, and sales of Precision Devices were better than anticipated aided by continued 4G/LTE infrastructure spending, particularly in China."

"Based on our current expectations of customer product launches and projected builds in the second half of the year, we continue to anticipate that 2014 will be a year of modest revenue growth for Knowles. In addition, restructuring initiatives across our business units are all on track and we remain committed to delivering year- over-year operating margin expansion in the fourth quarter of 2014."

In its release on July 28, the Company noted report details:

Business Highlights

Significant achievements in the quarter relative to business performance, innovation and operational excellence are as follows:

-Doubled sales to Chinese OEMs from the year ago period.

-Shipped our two millionth MEMS microphone to the hearing health industry.

-Began shipment of N' Bass-enabled Integrated Audio Solution for tablets with a leading Chinese OEM.

-Completed transfer of Capacitor manufacturing operations from the UK to an existing facility in China.

-Restructuring of Hearing Health business remains on track and is expected to be completed in the first half of 2015.

-Closed Vienna production facility with financial benefits beginning in the third quarter of 2014.

-Leveraged MEMS technology leadership to deliver the world's first digital microphone supporting ultrasonic bandwidth which can enable a whole new category of applications in the mobile consumer market.

Financial Highlights

The following highlights the Company's financial performance on both a GAAP and supplemental non-GAAP basis. The Company provides supplemental information regarding its gross profit, operating expenses, earnings before interest and income taxes, adjusted earnings before interest and income taxes, net earnings and diluted earnings per share on a non-GAAP basis that excludes stock compensation as well as certain intangibles amortization expense, restructuring and production transfer costs, and other charges which management considers to be outside our core operating results. Non- GAAP results are not presented in accordance with GAAP and may not be comparable to similarly titled non-GAAP information provided by other companies. Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP.

-Revenue for the second quarter of 2014 was $281.0 million compared with $296.7 million reported in the same period one year ago.

-Gross profit for the second quarter of 2014 was $33.8 million compared with gross profit of $101.2 million reported in the same period one year ago. Non-GAAP gross profit for the second quarter of 2014 was $82.1 million compared with non-GAAP gross profit of $105.6 million, reported in the same period one year ago.

-Loss before interest and income taxes for the second quarter of 2014 was $(44.0) million compared with earnings before interest and income taxes of $28.0 million in the year ago period. Current period results include $25.8 million of fixed asset and related inventory charges, $20.7 million in restructuring charges, $10.8 million from amortization of intangibles, $5.8 million in production transfer costs and $2.4 million in stock-based compensation.

-Adjusted earnings before interest and income taxes for the second quarter of 2014 were $21.5 million compared with $50.6 million reported in the same period one year ago.

-Provision for income taxes for the second quarter of 2014 was $33.1 million compared with a benefit from income taxes of $0.8 million reported in the same period one year ago. Provision for income taxes for the second quarter of 2014 included discrete tax items of $32.7 million, primarily related to valuation allowances recorded against certain deferred tax assets.

-Net loss for the second quarter of 2014 was $(78.9) million compared with net earnings of $16.7 million reported in the same period one year ago. Non-GAAP net earnings for the second quarter of 2014 was $22.2 million compared with $35.4 million reported in the same period one year ago.

-Loss per share for the second quarter of 2014 was $(0.93) per share compared with EPS of $0.20 per diluted share in the year ago period.

-Non-GAAP EPS for the second quarter of 2014 was $0.26 per diluted share, which includes a $0.05 per share benefit from certain discrete tax effects, compared with $0.42 in the year ago period.

Third Quarter 2014 Outlook

The following forward looking guidance for the third quarter ending September 30, based on current business trends and conditions is as follows:

-Revenue: $310 million to $330 million

-Non-GAAP Gross Margin: 32 percent to 34 percent

-Adjusted EBIT Margin: 14 percent to 15 percent

-Non-GAAP EPS: $0.45 to $0.52

Q3 2014 GAAP results are expected to include approximately $3 million in stock based compensation, $11 million in amortization of intangibles, $7 million in production transfer related costs, $5 million to $10 million in restructuring costs, and related tax effects on these items.

Knowles is a provider of micro-acoustic solutions and specialty components.

More information:

www.knowles.com

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